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Friday, July 25, 2014

Jayant Agro: Fudged..Return on Capital Employed(ROCE)??

I was looking at all the high PE stocks.. and one thing which struck me was the ROCE of Jayant agro is lower than other high PE stocks....

now looking at the 5 yrs (2009-2013) ROCE data for Jayant agro in money control I get.
Stand Alone Jayant Agro 5 yrs Avg. (2009-2013)ROCE = 17.44%

Consolidated Jayant Agro 5 yrs (2009-2013) Avg ROCE = 16.79%

ROCE =16-18% range is "ok" not too high, not to low maybe one reason for lower PE for Jayant Agro..

but then I decided to do ROCE calculation myself for Jayant Agro..
according to Investopedia:
ROCE = Earnings Before Interest and Tax (EBIT) / Capital Employed
where Capital Employed = (Total Assets - Current Liabilities)

I opened each year's Annual report (available here)

Using the Profit loss statement got the EBIT 
Using the Balance Sheet got the Capital Employed (Total Assets - Current Liabilities)

My calculations for ROCE Jayant Agro:
Stand Alone Jayant Agro 5 yrs Avg (2009-2013) ROCE = 26.26%
Consolidated Jayant Agro 5 yrs Avg (2009-2013) ROCE= 27.37%

5yrs Avg ROCE in Moneycontrol (stand alone)=17.44% 
5yrs Avg ROCE from Annual Report(stand alone)= 26.26% (calculated myself)
HUGE Difference!!

5yrs Avg ROCE in Moneycontrol (consolidated)=16.79%
5yrs Avg ROCE from Annual Report(consolidated) = 27.37% (calculated myself)
Again HUGE Difference!!

well then just to confirm my calculations ..I also calculated ROCE for a couple of different companies (1 year only) using Annual Reports from BSE Website
Checked Astral Poly Technik
Moneycontrol Data 2013 ROCE= 31.47%
Annual Report 2013 Data ROCE= 30.59% (calculated myself)
Checked Atul Limited
Moneycontrol Data standalone 2013 ROCE= 26.51%
Annual report 2013 calculated ROCE= 23.92% (calculated myself)
Checked GAEL data
Moneycontrol Data 2013 standalone ROCE= 19.97%
Annual report 2013 calculated ROCE= 23.44% (calculated myself)
as you can see the ROCE calculated(annual report) and from Moneycontrol website,difference is not that much for other companies..

Conclusion: ROCE and other stats though available from sites.. its best to do some quick chk calc.. to confirm data is correct.. Jayant Agro ROCE is close to 26-28% range instead of 16-18% published by moneycontrol.. another reason to make Jayant Agro an attractive investment destination..


Anonymous said...

PRAHALADJI everything is ok.what is the moat the company enjoys

What'sUp Prahalad said...

Anonymous ji:
I fail to comprehend what you mean by "everything is ok"

moneycontrol ROCE is correct?
my calculated ROCE is correct?
"everything is ok" means something altogether different..
The Moat "Jayant Agro" enjoys according to me.

1. very efficient supply chain to have a inventory turnover ratio & debt turnover ratio of 12.95 and 13.7 respectively which translates to
Consolidated Inventory turnover in days:365/12.95 = 28.18 days

Consolidated Debt turnover in days = 365/13.7 =26.64 days
Wafer thin Net Profit Margin but high ROCE indicates this efficient setup..
2nd Moat: Location advantage of Ihsedu Agro Chem.. wherein Banaskantha is the largest castor growing district in gujarat and its production equals the production of China (2nd largest castor seed producer in the world)

by buying out the govt of gujarat castor seed crushing plant and upgrading its capacity to 600Tonnes/day jayant has become the largest player in banaskantha district..
3. JV agreements with large buyers like Arkema, Mitsui chemicals ensures... that Jayant agro has become like a toll booth collecting dime for every dollar of castor based product entering the market world wide..
The only development that can cause problem is that of mechanized farming of castor in brazil.. which could result in brazil becomming again the largest producer in the world..
The silver lining I see in this development of brazil is that prices of castor will be much higher and jayant's profits could be atleast 5 times higher as margins expand..

=happy investing

Anonymous said...

Why do the price falling down

What'sUp Prahalad said...

Anonymous ji:

most people dont understand the complexity of the company..

secured loans: 357.48cr too much debt not a good company!!

well the fact is:
long term debt is: 33.45cr
short term is: 322.42cr which is for inventory.. and jayant has an inventory turnover of less than 30 days...
sales: 1537cr NP: 39.75cr
NP Margin: 2.58% TOO LOW MARGIN BUSINESS.. Not good..

ROCE: 86.88/303.57= 28.61% which indicates the real strength of jayant agro's supply chain..
Anyway the point I am trying to make is that though investing is based on a few basic principles..

key being buying mispriced assets.. and waiting for them to be fairly valued (1 times sales minimum.. for jayant agro)

it is not a one way street..
you would be extremly lucky that you buy and the stock starts moving north..
look at camlin fine sciences:
recommended at 100/=
company did rights at 3:5 and then did a stock split to rs 2/= (5:1)
and stock is at 94/=
camlin fine sciences was recommended when market cap was 59cr now the market cap is: 447cr
up 757% in 5 yrs!!..
Jayant has great promoters.. uniquely placed due to India's dominant position..
has the wind on its back in terms of REACH and global demand for sustainable living..
I see jayant at 10x in the next few years.. just need to be patient and have conviction..
(which is possible only if you have done your homework..)

=happy investing

Anonymous said...


I invested based on your recomm. I also feel it is a very good investment based on it's uniqueness in business.

Concern is Everything except the influence of weather condition on its raw material cos which is unpredictable.

What is your opinion on the same.

What'sUp Prahalad said...

Anonymous ji:

Weather condition can result in:
a) Bumper harvest - resulting in drop in prices
b) Crop failure - resulting in high demand and sharp increase in prices.

Nowdays castor crops are being grown as 180 days crop ie. 6 months from sowing to harvesting..

Jayant's inventory turnover is 30 days..
So as far as I can see.. any negative effect is when you hold inventory.. and you sell at a lower price resulting in loss..

if you donot hold inventory.. you buy at market price and process it and get your 2% margin and sell it to upstream players..

Castor as such is supposed to be a hardy crop and can withstand less rains or other conditions..

as such farmers are growing castor on irrigated land.. and hence even the weather factor is not much of an issue in gujarat.. Andhra and Rajasthan are more dependent of rains..
The fact that Jayant has reported consistent dividend payout since inception which is more than 20+ yrs of dividend payout.. I am sure they have seen good and bad days in 20+ yrs and have faced it in positive way..

Conclusion: value wise Jayant provides tremendous value.. only question is about value unlocking..
so its not a question of if.. jayant will be a multibagger .. but "When Jayant Agro" will be a multibagger..

=happy investing